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Hillary Clinton: Capitalism is out of Balance, Needs a Reset

July 25, 20151,354 Views

In the latest in a string of policy speeches, the Democratic front-runner laid out her plan for tackling corporate short-termism

Hillary Clinton wants to hike capital gains taxes as part of her plan to discourage short-term thinking among corporate executives and investors.

The Democratic presidential front-runner laid out her plan to retool the tax treatment of investment earnings on Friday as part of an ongoing series of speeches fleshing out her economic program. She proposed extending from one to two years the period that top earners would need to hang on to an investment before seeing the 39.6% tax rate applied to it start to fall.

And she would lower the rate slowly, over a six year period, down to the 24% rate for longer-term investments — a tweak that she said would help refigure a system that’s bent itself out of shape over the last few decades. Capitalism itself, she said, “needs to be reinvented, it needs to be put back into balance.”

Her speech, delivered at New York University’s Stern School of Business, was the sort of numerate wonk-fest that’s come to characterize her early campaign — an effort aimed in part at comparing favorably with the sprawling free-for-all on the Republican side. It also helped advance the argument she aims to make the substantive centerpiece of both her bid and her presidency: Addressing economic inequality is the defining challenge of our time.

The capital gains tax reform was only the first of five major areas she highlighted as requiring action to reverse the trend toward what she calls “quarterly capitalism,” the Wall Street-centered, sugar-high approach distracting public companies from investing in innovation, capital, and worker training and wages in favor of stock buybacks and dividends. The others ranged from leashing activist shareholders to further empowering workers, though she couched her proposals to limit any C-suite alarm bells.

To bring what she called “hit-and-run” activist shareholders to heel, Clinton exhorted institutional investors to exert their leverage as a counterweight on management. And she pledged to order a review of regulations on shareholder activism and to push for the same-day disclosure of buybacks already in force in the United Kingdom and Hong Kong.

Clinton also called out excessive compensation packages for executives as part of the problem. “I’m all for rewarding CEOs well when their companies prosper and their employees also share in the rewards,” she said. “But there is something wrong when senior executives get rich while companies stutter and employees struggle.” To address it, Clinton called for regulators to finalize the Dodd-Frank requirement that companies list the ratio of executive to worker pay; she proposed adjusting performance-based tax write-offs for executives to discourage moves designed to juice share prices; and she pitched mandating explanations for how executive pay packages serve the longterm interest of companies.

For good measure, Clinton added that Washington bears some responsibility, as well. She said elected leaders need to contribute by ending the budget brinkmanship that saddles corporate executives with uncertainty.

While the Democrat’s speech presented as a critique of the wages of a Wall Street-focused economy, the proposals that formed its spine are unlikely to ruffle many feathers in the financial services industry. And her frequent, favorable name-drops of corporate heavies checked any impression that she’s lurched into fire-breathing populist territory. She praised the innovative commitment of Google, SpaceX, and, historically, AT&T and Xerox, for example. Clinton singled out GM, Ford, and Chrysler for “putting the memory of the crisis behind them and making new investments in factories and technologies of the future, including advanced batteries.” Trader Joe’s and QuikTrip, she said, are becoming industry models for investing in worker training; Target and Starbucks are leading larger employers toward raising wages for entry-level workers; and Chipotle has earned her favor not just for its burrito bowls but for starting to provide certain benefits to part-time employees.

It’s of a piece with a carefully calibrated message she will tote through the race as she seeks to keep faith with a restive base without alienating big business interests.